Two LNG months in a nutshell 2

November 2012

• Indonesia approved BP’s US$12 billion plan to expand the Tangguh LNG export plant in West Papua province with the construction of a third liquefaction train. Like the two existing trains, the new unit will have a capacity of 3.8 million tonnes per annum (mta) of LNG. Some 40 per cent of the project’s output will be sold to state-owned electricity company Perusahaan Listrik Negara (PLN) for use in the domestic market. BP expects to take a final investment decision (FID) in 2014 and bring the new train onstream in 2018.

• Shell withdrew from Ionio LNG, a gas receiving terminal planned for the Sicilian port of Priolo. The decision signalled the end of the project. Shell and Italy’s Erg Power & Gas had unveiled their joint proposal for the 6 mta Ionio LNG terminal in 2005 but the project has been bogged down in the permitting process throughout its history. Erg decided to drop out of the scheme in summer 2012, citing the slack demand for gas in Italy, and Shell’s recent announcement was not unexpected.

• Papua New Guinea’s National Executive Council approved InterOil’s proposed Gulf LNG project on the condition that the scheme be developed as a 50/50 venture by the government and InterOil and its partners. Under the terms specified the government would acquire an additional 27.5 per cent stake over and above its legal 22.5 per cent entitlement, which is managed by state nominee Petromin. The planned export terminal is to be supplied with gas from the Elk and Antelope onshore fields.

• China National Offshore Oil Corp (CNOOC), Shandong Yantai Development Area Administration and China Guodian Power Development agreed to develop a 1.5 mta LNG import terminal and associated gas-fired power station at Yantai at the southern entrance to Bohai Bay in northern China. The LNG terminal will be based on the use of a floating storage and regasification unit (FSRU) and an ambitious entry-into-service date of 2013 was reported for the facility. In a second phase of the project, to be completed in 2017, a 4.5 mta shore-based LNG import terminal would be built.

• Western Australia granted state environmental approval for the Browse LNG export terminal that a Woodside-led consortium plans to build at James Price Point. Gas is to be sourced from the offshore Browse Basin. Woodside aims to make a final investment decision (FID) on the 12 mta scheme in the first half of 2013.

• ExxonMobil, project operator for Papua New Guinea LNG (PNG LNG), announced that the forecast capital cost for the export scheme had escalated by about 20 per cent, from US$15.7bn to US$19bn. The total does not include shipping and Port Moresby administration charges. The two-train liquefaction plant is still on track for a 2014 startup and the output capacity has been raised from 6.6 mta, as originally planned, to 6.9 mta.

• Polskie LNG launched a market screening procedure to assess the demand for the technical expansion of its new LNG import terminal now under construction at Swinoujscie and the provision of additional services over and above those that will be available when the facility opens for business in the second half of 2014.

• Kenya’s Ministry of Energy announced plans to install an FSRU-based LNG receiving terminal in the port of Mombasa. Mott MacDonald of the UK has carried out both the environmental impact assessment and feasibility studies for the US$450 million project, in conjunction with Nairobi-based Kurrent Technologies, and is now preparing the tender documents. The preferred bidder will be responsible for funding, building and operating the LNG facility for 30 years before handing it over to the government.

• Israel’s Delek Group decided to press ahead with the front-end engineering and design (FEED) study for its proposed Tamar/Dalit floating LNG project following successful completion of the pre-FEED stage. The Delek plan calls for the provision of an FLNG vessel with the capacity to produce 3 mta of LNG with gas sourced from the Tamar and Dalit fields located off Israel’s Mediterranean coast. Levant LNG Marketing and Pangea LNG commissioned Daewoo Shipbuilding & Marine Engineering (DSME) to carry out the FEED work. An FID on the Tamar FLNG project is expected in the second half of 2013.

• Kansai Electric Power (Kepco) agreed to buy 0.5 mta of LNG from BP for 15 years from April 2017. The price that Kepco is paying for its purchases will be linked to the Henry Hub natural gas prices that pertain in the US rather than the traditional crude oil-linked prices paid by Asian buyers of LNG. The utility company stated that this was probably the first instance of a Japanese company signing up to buy long-term LNG based on natural gas prices. Through this new deal Kepco expects to cut LNG purchase costs by roughly 30 per cent compared with long-term contracts linked to oil prices.

• Private equity firm Citadel Capital and Qatari investment bank QInvest signed a preliminary agreement under which they will form a joint venture to provide an FSRU-based LNG receiving terminal at a location in Egypt yet to be specified to enable natural gas imports. Although Egypt exports LNG and pipeline gas, the country’s domestic gas demand is increasing rapidly and the Citadel/QInvest scheme has been developed to enable the delivery of the required volumes to high-volume end-users.

• Japan Petroleum Exploration Company (Japex) commenced a study on the feasibility of an LNG import terminal at Soma on Japan’s east coast north of Tokyo. The new facility would be linked by a 40km pipeline to the existing Japex gas distribution network that serves the northern part of the main island of Honshu. The company is looking at a 2018 startup for the new terminal; the size and capacity of the facility are still to be decided.

• Korea Gas Corp (Kogas) announced it will invest US$1.3bn to develop the Gladstone LNG (GLNG) project in Australia, in which it holds a 15 per cent stake. The expenditure is in addition to its initial injection of US$610m to buy the GLNG stake in February 2011. The Santos-led, 7.8 mta GLNG scheme, which is based on the use of coal seam gas (CSG), is set to begin loading cargoes for export in 2015. Rises in development costs have been announced for a number of Australian LNG projects, including GLNG, in recent months. Santos hiked the cost of the scheme by more than 15 per cent, to US$18.5bn, reporting that it needs to drill 300 more wells to find the volumes of CSG required.

• The 147,500m3 Ob River became the first LNG carrier to complete a laden passage of the Northern Sea Route along Russia’s Arctic coast. The Dynagas-owned, Gazprom-chartered, ice class 1A ship loaded the cargo at Statoil’s Snohvit terminal near Hammerfest in northern Norway and transported it eastbound to Japan. Ob River was accompanied by two nuclear-powered Russian icebreakers for the second half of the voyage, from the Vilkitski Strait to the Bering Strait, where young ice of up to 30cm in thickness was encountered.

December 2012

• Qatargas was contracted to provide the first cargo for the Singapore LNG terminal, which is due to commence operations in the second quarter of 2013. The cargo will be delivered by either a Q-flex or a Q-max size LNG carrier. Located on the island nation’s Jurong Island, the Singapore LNG receiving terminal will be the first open-access, multi-user LNG facility in Asia. Throughput capacity in the initial phase of operation will be 3.5 mta.

• Woodside Petroleum signed a preliminary agreement under which it will buy a 30 per cent stake in Israel’s offshore Leviathan natural gas field. The deal could be worth US$2.5bn. It is intended to initially deliver gas from Leviathan, which is located 130km off the Mediterranean port of Haifa, via subsea pipeline to the Israeli domestic market. A future development phase under investigation is the use of an FLNG vessel to liquefy cargoes for potential customers in Europe and Asia. The production of Leviathan gas for Israel’s domestic market is targeted for 2016.

• Chevron reported that the total cost of its three-train, 15.6 mta Gorgon LNG project in Australia has increased from US$37bn to US$52bn. The factors contributing to the higher costs include labour charges, logistics challenges, weather delays and the appreciation in the Australian dollar. The Gorgon project is approximately 55 per cent complete and plant startup is planned for late 2014, enabling the loading of the inaugural LNG cargo in the first quarter of 2015. Chevron and its Gorgon partners have recently given the go-ahead for a fourth Gorgon LNG train.

• Canada cleared the way for the proposed takeover of Progress Energy, the Calgary-based producer of unconventional gas, by Petronas of Malaysia. At the same time, Petronas announced that pre-FEED work for the planned Pacific Northwest LNG project will commence and that it expects to make an FID on the scheme in 2014. The two-train, 7.6 mta plant, to be built on Lelu Island near Prince Rupert on the British Columbia coast, would make use of the Montney shale gas resources being developed by Progress. Petronas is seeking to commence the export of LNG cargoes to potential customers in Asia by 2018. The project is expected to cost in the region of US$9-11bn.

• US Department of Energy (DOE) released the study it commissioned NERA to compile on the macroeconomic impacts of LNG exports on the US economy. The report concludes that the country will gain net economic benefits from allowing LNG exports under all scenarios studied, the benefits increasing in tandem with the level of LNG exports. Furthermore, because LNG exports will have only a relatively minor effect on domestic gas prices, the overall benefits will outweigh any downsides resulting from rising prices. Public comments on the report were due by 24 January 2013.

• OLT Offshore LNG Toscana advised that the startup of its FSRU receiving facility, to be positioned 22km off the Italian coast near Livorno, has been put back to the third quarter of 2013 due to delays during conversion work on the vessel at the Drydocks World yard in Dubai. The arrival of the completed FSRU Toscana vessel at its appointed offshore station is now scheduled for the end of the first quarter of 2013. The subsequent commissioning of the mooring arrangements and the FSRU’s regasification facilities will enable commercial operations to commence at the beginning of the third quarter.

• Royal Dutch Shell disclosed it will move the headquarters of its integrated gas business to Singapore from Europe in recognition of Asia’s predominant and growing role in the global LNG trade. With 22 mta of LNG production currently onstream, Shell is the world energy major with the largest presence in the sector. Its overall hydrocarbons output is now split 50-50 between gas and oil. The relocated gas business unit will be responsible for all Shell’s gas and LNG projects outside North America. Shell estimates that the global demand for gas in 2050 will be double the 2010 level and that in the international gas market the LNG delivery option will grow much more quickly than the pipeline alternative over the period.

• Al-Qaeda militants blew up the pipeline that transfers gas from Yemen’s Marib field to the country’s LNG export terminal at Balhaf on the Gulf of Aden. It was the eighth such attack involving disruption to LNG production schedules over the past 12 months.

• PetroChina agreed to buy a stake in Australia’s Browse LNG export project from BHP Billiton for US$1.63bn. The payment provides the Chinese company with a 20 per cent stake in the West Browse venture and an 8.33 per cent stake in the East Browse joint venture.

• Shell and the Technip Samsung Consortium (TSC) signed a heads of agreement (HOA) to enhance collaboration on the design, engineering, procurement, construction and installation of future FLNG facilities. The agreement builds on the existing relationship, formed in 2009, to ensure the parties can capitalise on insights gleaned from the design and construction of Shell’s Prelude FLNG facility and expand their joint FLNG technology offering.

• Sui Southern Gas Company (SSGC) of Pakistan and the US company United Energy signed an MOU which calls for United to deliver 4 mta of LNG to SSGC on a long-term basis. The cargoes will be provided by a new liquefaction plant to be built on the US Gulf Coast and in which SSGC will hold a stake.

• The UK government lifted a ban on the exploratory hydraulic fracturing (‘fracking’) of shale gas that has been in place since May 2011. Cuadrilla Resources, the only company to have started exploratory drilling in the UK, in North West England, said it will now resume its activities but that operations will be subject to a strict new set of guidelines to mitigate the risks of seismic activity.

• Qatargas signed a long-term sales and purchase agreement (SPA) with PTT of Thailand covering the delivery of 2 mta from the Qatargas 3 project for a period of 20 years beginning in 2015. The agreement marks PTT’s first long-term LNG SPA as well as the first long-term agreement for Qatargas in South East Asia and the Qatari company’s first term contract with PTT.

• Total signed an SPA with Sabine Pass Liquefaction under which it will purchase seasonal volumes of LNG for a period of 20 years from the fifth train planned for the Sabine Pass export terminal. The volumes represent approximately 2.0 mta of Train 5’s nominal 4.5 mta output. The first two Sabine Pass trains are under construction and work on the third and fourth trains is expected to commence in 2013. Subject to an FID, deliveries from Train 5 could commence in 2018. Under the terms of the SPA Total will purchase LNG on an FOB basis at a price indexed to the monthly Henry Hub gas price plus a fixed component. Cheniere Energy, the parent of Sabine Pass Liquefaction, envisages the construction of a sixth train in tandem with the Train 5 project. Bechtel has been the engineering contractor for all the Sabine Pass trains so far and is now engaged in preliminary engineering studies for Trains 5 and 6.

• Magnolia LNG, a subsidiary of LNG Ltd of Australia, applied to the US DOE for permission to export up to 4 mta of LNG to countries with which the US has FTAs. Magnolia LNG is proposing the construction of a liquefaction plant on the Calcasieu Channel in Louisiana, where the cargoes would be loaded. The company is seeking approval for the export of LNG to FTA countries in its own right and/or as an agent for selected LNG tolling parties and LNG buyers.

• The Fos Tonkin LNG terminal near Marseilles celebrated its 40th year in service. Operated by Elengy, an affiliate of GDF Suez, the facility has received nearly 5,500 ships since its commissioning in 1972. Today, it still accounts for 10 per cent of France’s annual natural gas consumption. The latest measure in the terminal’s ongoing upgrade programme is a €30m (US$40m) renovation scheme launched in 2012 that will enable the facility to operate until 2020. GDF Suez is investigating a further investment project that encompasses the construction of a new storage tank and that would enable the site to continue operating until 2035.

• GAIL, India’s gas transmission firm, said it intends to buy 25 spot cargoes of LNG in 2013, up from 16 in 2012.

• Gasol signed a strategic alliance with SOCAR, the Azerbaijan state oil company, covering the supply of LNG required for Gasol’s plan to import gas for customers in Benin, Togo and Ghana via a new FSRU-based receiving terminal located in the Benin port of Cotonou. SOCAR will be responsible for the provision of the FSRU. Gasol also finalised a deal with Bengaz to jointly market gas in West Africa under the Cogaz brand.

• Eni and Anadarko concluded an HOA committing them to the co-ordinated development of their adjacent natural gas reserves off the coast of Mozambique through a common LNG export facility. The two companies, and their respective partners in the two neighbouring offshore fields, envisage the construction of an LNG terminal on the northern coast of Mozambique in Cabo Delgado province, to be provided with a capacity of 20 mta and to be producing its first cargoes for sale to overseas buyers in 2018. CB&I and Chiyoda Corp have been appointed to carry out the FEED work for the LNG terminal jointly.

• PT Perusahaan Listrik Negara (PLN), the Indonesian state electricity firm, concluded an HOA with BP under which it will receive approximately 1 mta from the Tangguh LNG plant in West Papua for 20 years starting in 2013. The principals also agreed to execute an LNG SPA to seal the domestic deal by mid-2013. The volume works out at 28 cargoes per annum through 2033. Shipments will be made to both Arun, now being converted from an LNG export plant to an import terminal, and the West Java FSRU-based receiving facility.

• Chevron bought out the stakes in the Kitimat LNG project held by Encana and EOG Resources and is now proceeding with the scheme on a 50/50 joint basis with Apache Corp and as lead operator and LNG marketer. Chevron is also participating in the Liard and Horn River gas fields and the Pacific Trail pipeline, which will supply the two-train, 10 mta export terminal planned for Kitimat on Canada’s British Columbia coast.

• A new US federal energy report stated that the Marcellus shale gas wells in Pennsylvania and West Virginia now produce 7 billion ft3/day of gas. That’s about 25 per cent of all shale gas production nationwide and nearly double the Marcellus production of a year earlier.

• The 5 mta Dabhol LNG import terminal in the Indian state of Maharashtra received a commissioning cargo. The shipment was purchased from Gazprom and delivered on behalf of GAIL. The operation represented a second attempt to bring the terminal onstream; the discharge of an earlier commissioning cargo, in March 2012, had to be abandoned due to damage to the cargo transfer and safety arrangements on the jetty. Dabhol will not be able to operate at full capacity until a 2.3km long outer breakwater at the port is completed. The ocean swells experienced during the May-October monsoon season makes the berthing of LNG carriers difficult without such a breakwater. LNG